GENERAL AVERAGE AND NVOCC

Perhaps in a simple understanding, General Average is a situation in which all parties in the voyage have to contribute towards the expenses of the ship-owner when the vessel had encountered an event due to a common peril, such event resulting in extra-ordinary cost or material sacrifice intentionally and reasonably committed by the ship-owner in safeguarding the completion of the voyage. It is a case of mutual benefits and sacrifices for all parties in the voyage, such parties generally being the carrier, charter and cargo shippers/consignees all of whose interests have been preserved under the act leading to general average.

Well known general average cases in recent times would include the explosion and fire onboard Hyundai Fortune and Hanjin Pennsylvania . While these are famous cases, there are other numerous General Average declarations arising from eventualities such as machinery breakdown, stranding of vessel resulting in re-floating cost, water damage to cargo resulting from fire onboard. Although not as common in modern time, jettison of cargo to safeguard the voyage is also an act of sacrifice constituting a general average act.

With cargoes in containers the interests of NVOC, freight forwarders and logistics operators are subject to the General Average declaration. They could be called upon to provide the necessary General Average security notwithstanding that they are not the owners of the cargoes or may lack legal title to the goods. Cargoes may be damaged or delayed in the general average event; nonetheless the cargoes interests (shipper or consignee) remain liable for their shares of the general average contributions.

The obligation to pay general average contribution attaches to cargo and generally lies with the cargo owner, which would be the shipper or consignee. Hence NVOC, being the intermediary in the carriage of goods by the ship-owner should not be made to bear such liability for general average contribution. However, in practice, the NVOC may not always be able to avoid general average liability in view of its status in the master bill of lading issued by the ship owner, the actual carrier. Conflicting situations would rise where on one hand there would a batch of consignees/shippers with full set of general average security in demanding for the release of their cargoes while on the other hand there would be another batch of consignees/shippers who are not providing the general average security and whose cargoes remain in the hands of the actual carrier. If the actual carrier refuses to unload the container and separate the cargoes accordingly, the NVOC would face a potential liability to the cargoes interests who have general average security and yet are unable to receive the goods. Hence the NVOC may be placed in the position of rendering all outstanding general average security in order to obtain the release of the container ie the cargoes therein and allow such consignees to collect the cargoes.

In practice the carrier or ship-owner would appoint a professional firm to act as average adjuster on behalf of the vessel. The GA adjuster is expected to act fairly and impartially on behalf of all parties involved. The GA adjuster would calculate the correct contribution proportion and is responsible for collecting the right level and forms of general average security.

For the NVOC, proper records are essential in order to ensure general average security is provided in time and completely. Copies of NVOC bills of lading, containers manifests, packing lists and invoices are essential documents to maintain general average requirements. Where there are co-loaders, it would be necessary that such co-loaders have the similar requirements extended to their cargo clients. Both consignees and shippers should be informed as their respective sales terms may determine whose responsibility it should be for the general average security.

Where there is cargo insurance such cargo insurer is usually the party that provides the general average security. If the shipment is FCL the NVOC should be able to leave the cargo interest to provide the general average security. In the absence of cargo insurance, the general average security would usually be provided in a form of a bank guarantee or cash deposit for the amount as determined by the average adjuster.

Average adjustment is a long drawn process that may take several years hence where such cash deposit or bank guarantee is provided, it is to be expected that this financial outlay would remain unchanged for such long duration before the average adjuster is able to discharge the contribution liability.

Disclaimer : Whether there is insurance cover against the above two cases is not intended in this article. Please consult the insurance practitioner.